NEW YORK (Reuters) - New York’s top banking regulator is considering issuing regulatory guidelines for Bitcoin and other virtual currencies, according to a memo posted on its website on Monday.
The memo comes after federal authorities have filed claims against other digital currency businesses. Last year, the FBI reported Bitcoin was being used by criminals to move money around the world.
Benjamin Lawsky, superintendent of the New York Department of Financial Services, said in the memo that his department is concerned that virtual currency exchangers are violating current New York regulations for money transmitters, which require posting collateral and periodic examinations.
He warned in the memo that “serving as a money changer of choice for terrorists, drug smugglers, illegal weapons dealers, money launderers, and human traffickers could expose the virtual currency industry to extraordinarily serious of (sic) criminal penalties.”
Lawsky said the department also is considering new regulations specifically for the emerging currency products.
“If virtual currencies remain a virtual Wild West for narcotraffickers and other criminals, that would not only threaten our country’s national security, but also the very existence of the virtual currency industry,” Lawsky wrote.
Digital currency is electronic money that can be passed between parties without traditional banking or money transfer systems. Bitcoin is the most prominent one, having been embraced by a number of venture capitalists in Silicon Valley.
As part of its inquiry, the department issued subpoenas to 22 companies associated with virtual currencies last week, according to a person familiar with the probe.
The subpoenas seek information on anti-money laundering controls, consumer protection measures, and investment strategies in virtual currencies, said the person, who was not authorized to speak publicly and did not want to be identified.
BitInstant, BitPay and Dwolla are among the companies subpoenaed, the person said. None returned phone calls or emails seeking comment.
Jaron Lukasiewicz, chief executive officer of New York-based Coinsetter, declined to comment on the subpoena his company received, but did say in an email, “Although it may not be apparent from the outside, the leading Bitcoin companies are taking regulation and compliance very seriously.”
Subpoenas also went to firms backed by investors in virtual currencies, including Andreessen Horowitz, founded by Marc Andreessen and Ben Horowitz, the Founders Fund, which includes Peter Thiel and Sean Parker, and Winklevoss Capital Management, founded by Cameron and Tyler Winklevoss, the person said.
Through a spokeswoman, the Winklevosses declined comment. Last month, they said they planned an initial public offering that would give investors exposure to the value of Bitcoin.
Neither Andreessen Horowitz nor the Founders Fund responded to requests for comment.
Patrick Murck, general counsel for the Bitcoin Foundation, an advocacy group of Bitcoin-related businesses, said it would engage “with regulators in New York” and wherever else was needed and provide legal defense when appropriate.
Bitcoin exists through an open-source software program and is not managed by a single company or government. Its users can buy Bitcoins through exchanges that convert real money into the virtual currency.
The U.S. Treasury Department in March said digital currency firms were required to abide by anti-money laundering regulations, including monitoring customers and reporting suspicious activity.
Last week, a federal judge in Texas allowed the U.S. Securities and Exchange Commission to proceed with its case against a Texas man accused of running a Ponzi scheme with Bitcoin.
Reporting by Karen Freifeld; Editing by Leslie Gevirtz